Woolworths chief executive Grant O'Brien kept to a very tightly-worded script when asked about the Australian Competition and Consumer Commission's probe into claims that the big supermarket groups have been bullying suppliers.

Woolies had a strong track record in running a business that was "fully compliant," he said, adding that it had a "suitably qualified and accredited" team. The focus was, is and would be on running a successful business, he said, one that both boosted returns for its shareholders and delivered a better shopping experience for its customers. Falling grocery prices and steadily increasing customer numbers in Woolies supermarket were evidence that the group was succeeding, he suggested.

There's no doubt however that behind the scenes Woolies and its big competitor, Coles, will be looking hard to see if claims that buyers have bullied suppliers are correct.

The supermarkets are powerful, and suppliers have been reluctant in the past to back up anecdotal claims of bullying with evidence, not of the exercise of their considerable power, but the illegal deployment of it.

ACCC Rod Sims broke through that barrier last year when he said any supplier that came forward with information could do so in confidence. He heard enough to upgrade the probe into a formal investigation where suppliers can be called to give information that could be used as evidence.

But there is a lot of water to flow under the bridge with the ACCC investigation. Both groups have policies and guidelines that require buyers to deal fairly with suppliers. But as Wesfarmers chief executive Richard Goyder pointed out at a business conference this week, at groups as large as Wesfarmers and Coles, the odds are that someone on their staff has ignored those policies at some stage.

Goyder had previously confirmed that his group was running its own internal investigation. O'Brien's comment when he handed down Woolies' 5.5 per cent higher $1.25 billion first half profit was that Woolies always cooperated with the ACCC.

Like Goyder, O'Brien will know that a thorough stocktake of buyer behaviour may turn up something.

Goyder's point is a key one, however. Finding anti-competitive behaviour inside either of the groups doesn't mean that the ACCC will also find that the two big supermarket groups have been systematically mugging their suppliers.

The discovery of rogue operators would raise questions about their internal oversight, but it's another step for the ACCC to conclude that the companies themselves deliberately broke the rules.

31 comments

Sims needs to look at this holistically - increasing private label, increasing power of the buyers and increased trade concentration makes a perfect storm for suppliers. Imagine if we only had two banks - how nice would they play?

Commenter

RedFred

Location

Toorak

Date and time

February 28, 2013, 12:31PM

Agreed, and when the pressure is on to meet rebate and other non trading income to meet budgets where do buyers tend to go? Suppliers. This is also a cultural issue in many retailers not just the big two, to see how much muscle they can exert and then buyers walk around as heroes at the suppliers expense. As the old saying goes 'a fish rots from the head' and this issue is bigger than one or two supposed 'rogue buyers'.

Commenter

dexxter

Location

melbourne

Date and time

February 28, 2013, 1:06PM

Exactly, RedFred. In most other countries having a duopoly like this is *de facto* illegal and they would be broken up. In the US it is illegal to obtain more than about a third of the market place. AT&T, Standard Oil and myriad other companies were broken up as they violated anti-trust and interlocking directorate laws. British anti-monopoly laws are equally strong. We have no such legislation here so we get shafted day in and out by these two companies. Interestingly, shareholders of the broken up company tend to make out like bandits as they now get shares in multiple companies. The only losers are management who always oppose such break-ups.

Commenter

Luke

Date and time

February 28, 2013, 1:12PM

Sadly RedFred I don't think Sims has any authority to actually do anything of substance. PErhaps a slap on the wrist, a $10,000 fine but nothing that would stop this type of behaviour in the future. Worse, the onus is on the ACCC to prove things like the 8¢ fuel discount is a cross-subsidy from food profits. That stuff is just too easy to hide and way too hard to find. It is the parliament that has allowed these two companies to create a stranglehold on every part of the economy from food, petrol, gambling, liquor, pubs and now insurance. Good grief, we are sooks.

Commenter

so tired of being ripped off

Date and time

February 28, 2013, 1:23PM

Luke, under no law in any country is being part of a duopoly (or even a monopoly for that matter) defacto illegal. It is terse law that having market power or dominance (to use EU terminology) is not in itself a breach of competition law. It is the 'misuse' of this market power (in Australia) or 'abuse of dominance' (EU) which is against the law.

Competition authorities like the ACCC do not go about breaking companies up. It is not their job to do so and they have no power to do so.

Commenter

Guest2

Date and time

February 28, 2013, 1:32PM

Mr Sims, is about to allow Qantas tie up with the Emirates which will spell the end of Qantas as we know it, par for the course for a government commission.... I doubt the ACCC will expose anything big between Wollies & Coles of any substance, just a whole lot of hot air to justify the ACCC's existence. Like Qantas, Wollies and Coles are too powerful and at the end of the day will get away with what they want.. For me the ACCC is a toothless tiger which keeps a lot of lawyer types in a job, nothing more.

I had to laugh when I read that comment. Do they think we are stupid? By their very nature companies do whatever they can to amass more market share, more pricing power, and more profit. That's what they're designed to do. What is missing in Australia is any meaningful legislation and oversight to correct a market dominance problem when it occurs. Australia is one of the only countries in the OECD where it is not illegal to be a monopoly/cozy duopoly.

Commenter

LR

Date and time

February 28, 2013, 1:15PM

What is missing in Australia LR, is a public who are prepared to send a message with their wallets, but no-one seems prepared to stop the carnage until it arrives at their specific doorstep (i.e. when their job is on the line) and then it is too late. If we the public cared enough, the ACCC would largely have nothing to do. It boggles the mind that people will watch a dairy or some other firm go under or shed jobs so they can save 35 cents on a product they use 5 times a month (whilst sipping a 15 buck bottle of wine). We all have to take responsibility. I dont hate the Big 2, they employ loads internally and externally and pay big tax, but at some point they gotta be reigned in. Legislation is always tricky and goes against capitalism (where do you stop), but an educated and responsible public wallet is a much more efficient and tasteful solution.

Commenter

AJ

Location

Adelaide

Date and time

February 28, 2013, 1:26PM

AJ, I agree. At the end of the day, everything is in the hands of us, the consumers. However, that opportunity to have an impact is disappearing fast. Where I live we're running out of alternative grocery shops to the big 2 who are killing the competition. Unless I want to drive a long way, I am stuck with one of the big 2 out of necessity. I expect others are in the same boat.